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Two of the most frequently asked questions project managers may hear are "Is the project on schedule?" and "Is the project on budget?" Using the time and cost tracking features of Microsoft Project, it's fairly easy to answer these questions—assuming you've properly set up your project plan and accurately tracked actuals.

However, to more fully gauge overall project health, you may need to go beyond simple time and cost reporting. For example, consider the following projects:

• Project A has an estimated duration of eight months and a total budget of $80,000. After two months have elapsed, the project manager reports that the project is running under budget; only $15,000 have been spent.
• Project B also has an estimated duration of eight months and a total budget of $80,000. Its project manager reports at the end of month two that they are over budget; Project B has already spent $25,000 of its budget.

For both projects, let's assume that costs are distributed evenly throughout the project durations. We'd expect that by the end of the second month, $20,000 would have been spent. In other words, two months is 25% of each project's duration, and $20,000 is 25% of each project's budget.

Can you accurately gauge the overall health of either project with the information provided? It turns out you cannot:

• Project A is currently $5,000 under budget, but has at least 25% of the planned work been completed?
• Project B is currently $5000 over budget, but has more than 25% of the planned work been completed?

To answer these questions, we have to analyze the project information in a way that looks at both cost and schedule information concurrently. This is when earned value analysis is helpful.

Earned value analysis tells us how much of the budget should have been spent, in view of the amount of work done so far, and the baseline cost for the task, assignment, or resource. "Earned value" is actually a very descriptive name: how much value has the work on the project earned so far? To make cost and schedule values comparable, earned value analysis focuses on dollar values of cost and schedule.

Earned value analysis has its origins in large projects carried out for the US federal government, and remains one of the essential project status reporting tools for major government projects. More complex forms of earned value analysis go by names such as Cost/Schedule Control System Criteria (C/SCSC), or CS-squared. However, because of earned value analysis' usefulness in predicting future project performance, it is gaining popularity on smaller projects as well. There are two essential elements you need in your Microsoft Project plan to use earned value analysis:

• Cost information per task   This can either be direct fixed task costs, or calculated costs based on resource assignments to tasks and the resources' cost rates. Or, you may have a combination of both types of costs.
• Actual work recorded per task   This can be actuals collected directly from resources via Microsoft Project Central, entered by you into the project, or a percent complete value per task (or any combination of these methods). One simple approach to recording actual work is to use percent complete values on the Tracking toolbar. For example, as soon as a task starts, record it as 50% complete, then once the task is completed, record it as 100% complete. This is not as precise as collecting actuals directly from resources, but in most cases it gives you a good approximation of actual work.

The central location where Microsoft Project displays earned value fields is the Earned Value table.

To display the Earned Value table:

1. On the View menu, point to Table, and then click More Tables.
2. In the More Tables dialog box, select Earned Value, and then click Apply.

Tip   The earned value fields displayed in the Earned Value table can be cryptic if you aren't familiar with them. To get help with any of these fields, point to the column heading and in the pop-up that appears, click the "Help on (field name)" link. Microsoft Project displays the Help topic about that earned value field. This tip works for any column heading in any table in Microsoft Project.

Since earned value is relative to a specific point in time, you need to specify a status date for which Microsoft Project will calculate earned value numbers.

To set the project status date:

1. On the Project menu, click Project Information.
2. In the Project Information dialog box, type or select the date you want in the Status Date field, and then click OK.

Microsoft Project calculates earned value numbers for every task and summary task in a project, but most typically you are interested in the overall project's earned value numbers. One easy way to see this is to display the project summary task.

To display the project summary task:

1. On the Tools menu, click Options, and then click the View tab.
2. Select the Project Summary Task check box, and then click OK.

All of the earned value fields display calculated values, derived from the project details. The earned value fields supported by Microsoft Project are mostly the "raw" earned value numbers; more refined analysis, like calculating indices such as the cost performance index (CPI) and schedule performance index (SPI), requires additional calculations of the raw earned value numbers. This is a subject for a future article.

However, the earned value fields provided by Microsoft Project do give you enough information to start applying earned value analysis now. Below are the most relevant values. For all of the earned value numbers, you can focus on an individual task, a summary task, or the entire project. Likewise, all calculations are based on the current date or, if you specified one, the project status date.

• BCWS, or budgeted cost of work scheduled   This value shows the cumulative timephased baseline costs. This is what was planned to spend.
• ACWP, or actual cost of work performed   This value shows the costs incurred for work already done on a task, up to the status date you specified. In other words, this is what has actually been spent thus far in the project.
• BCWP, or budgeted cost of work performed   This is the literal "earned value," and as you might expect, is a little more complicated. BCWP shows the cumulative value of the task's timephased percent complete multiplied by the task's timephased baseline cost. In other words, this is the value of the work that has been completed or, as we said above, the value that has been earned thus far in the project.

By comparing these three values, Microsoft Project determines the project's cost variance (CV) and schedule variance (SV). These are both important indicators of overall project health. Let's consider each one separately.

• Cost variance is the difference between the budgeted and actual cost of work performed. CV measures cost performance in terms of cost values.
• Schedule variance is the difference between the budgeted cost of work performed and the budgeted cost of work scheduled. SV measures schedule performance in terms of cost values.

As noted above, both CV and SV are reported as dollar amounts, so relative size or risk of variance depends on the task's or project's overall cost. A $1,000 cost variance in a $50,000 project should raise more concern (and project manager's focus) than a $1,000 cost variance in a $10,000,000 project at the same point of completion.

The key aspect of earned value analysis in Microsoft Project is that the program provides you with the raw numbers, but it doesn't attempt to provide any qualitative analysis of those numbers. This is a task best left to the project manager, who knows the project's risk boundaries and when performance measures should sound off alarms that more scrutiny, and perhaps corrective action, is required.