Earned Value Management for project managers
- 1. Earned Value Management in Cost Management Mgt & Constr Plg Col Kunal Krishna
- 2. Introduction to Earned Value Method (EVM) • Integrated Performance Measurement: EVM combines schedule and cost metrics for comprehensive project performance analysis. • Risk Mitigation Strategy: Utilizing EVM allows early identification of potential project cost overruns and delays. • Industry-Specific Applications: In Indian construction, EVM enhances accountability amidst diverse regulatory challenges and resource constraints.
- 3. Earned Value Management (EVM) Overview • Technique for measuring project performance and progress objectively. • Integrates project scope, schedule, and cost parameters to provide accurate forecasts and insights into project performance issues. • The significance of EVM lies in its ability to help project managers predict future performance and identify potential risks early.
- 4. The Three Core Metrics of EVM Planned Value (PV) Planned Value (PV) represents the budgeted cost of work scheduled to be completed by a certain date. It is a measure of the work that should have been accomplished at a point in time. Earned Value (EV) Earned Value (EV) is the budgeted amount for the work actually completed at a specific point in time. It indicates the earned progress of the project. Actual Cost (AC) Actual Cost (AC) is the total cost incurred for the actual work completed by a specific point in time. It provides a real expenditure figure for comparison with PV and EV.
- 5. EVM Terminology Budget at Completion (BAC) Estimate at Completion (EAC) Estimate to Complete (ETC) - Budget at Completion (BAC) is the total budget allocated for the project. - Crucial for calculating planned value and forecasting remaining work. - Estimate at Completion (EAC) provides a forecast of the project's final cost, calculated by EAC = AC + ETC. - Helps in predicting the end cost under current performance trends. - Estimate to Complete (ETC) is the forecasted cost needed to complete the remaining project work. - Derived using ETC = EAC - AC, contributing to accurate forecasting and financial planning.
- 6. Steps to Implement EVM Performance Monitoring: Continuous monitoring tracks project health, enabling timely interventions to mitigate risks. Baseline Plan Development: Establishing a baseline plan is crucial for measuring project performance against expectations. Scope Definition: Clearly defining project scope ensures focused deliverables and prevents scope creep.
- 7. Planned Value • Also known as Budgeted Cost of Work Scheduled (BCWS) • BAC (Budget at Completion): The total budget allocated for the project. • Planned Percentage of Completion: The percentage of work that should be completed by the given date according to the project schedule.
- 8. Earned Value • Also known as also known as Budgeted Cost of Work Performed (BCWP) • BAC (Budget at Completion): The total budget allocated for the project. • Planned Percentage of Completion: The percentage of work that should be completed by the given date according to the project schedule.
- 9. Key Formulas in EVM Cost Variance (CV) and Schedule Variance (SV) • Cost Variance (CV) is calculated as CV = EV - AC, and it measures cost performance by comparing earned value with actual cost. • Schedule Variance (SV) is SV = EV - PV, and it indicates schedule performance by comparing earned value with planned value. • Cost Performance Index (CPI) is CPI = EV / AC, and it measures cost efficiency. • Schedule Performance Index (SPI) is SPI = EV / PV, and it measures schedule efficiency. These indices help assess project health effectively. Cost Performance Index (CPI) and Schedule Performance Index (SPI)
- 10. What is CPI? • Definition • Cost Performance Index (CPI) measures the cost efficiency of a project. • It compares the value of work completed to the actual cost incurred. • Formula: CPI = EV / AC • EV (Earned Value): Value of work actually completed. • AC (Actual Cost): Actual cost incurred for the completed work.
- 11. Interpreting CPI • CPI > 1: • Project is under budget. • More than one dollar’s worth of work for every dollar spent. • CPI = 1: • Project is on budget. • Exactly one dollar’s worth of work for every dollar spent. • CPI < 1: • Project is over budget. • Less than one dollar’s worth of work for every dollar spent.
- 12. Example Calculation • Example: • EV (Earned Value): $50,000 • AC (Actual Cost): $60,000 • CPI Calculation: • CPI = 50,000 / 60,000 = 0.83 • Interpretation: • CPI = 0.83 • Project is over budget.
- 13. Importance of CPI • Cost Efficiency Assessment • Evaluates how well the project is using its budget. • Forecasting • Predicts total project cost at completion. • Decision Making • Identifies need for corrective actions if CPI is low. • Confirms good cost performance if CPI is high.
- 14. Using CPI for Project Control Stakeholder Comn Provide clear, quantifiable measures of cost performance. Performance Reviews Regularly monitor CPI to track project performance. Corrective Actions Implement changes to improve cost efficiency.
- 15. What is SPI? Definition • Schedule Performance Index (SPI) measures the schedule efficiency of a project. • It compares the value of work actually completed to the planned value of that work. Formula: SPI = EV / PV • EV (Earned Value): The value of work actually completed. • PV (Planned Value): The value of work planned to be completed by a specific point in time.
- 16. Interpreting SPI • Project is ahead of schedule. • More work has been completed than planned. SPI > 1: • Project is on schedule. • The amount of work completed matches the planned schedule. SPI = 1: • Project is behind schedule. • Less work has been completed than planned. SPI < 1:
- 17. Sample Calculation • EV (Earned Value): $50,000 • PV (Planned Value): $60,000 Example: • SPI = 50,000 / 60,000 = 0.83 SPI Calculation: • SPI = 0.83 • Project is behind schedule. Interpretation:
- 18. Importance of SPI • SPI helps in evaluating how efficiently the project is adhering to its planned schedule. Schedule Efficiency Assessment: • SPI can be used to predict future schedule performance and potential completion dates. Forecasting: • A low SPI indicates that corrective actions might be needed to get the project back on track. • Conversely, a high SPI shows good schedule performance. Decision Making:
- 19. Using SPI for Project Control • Corrective Actions • If the SPI indicates poor schedule performance, project managers can investigate the root causes and implement corrective actions to improve efficiency. • Performance Reviews • Regularly calculating SPI helps in monitoring project performance and making timely decisions to ensure schedule adherence. • Stakeholder Communication • SPI provides a clear and quantifiable measure of schedule performance, which is useful for reporting to stakeholders.
- 20. Benefits of EVM • Improved project visibility and control • Early warning of performance issues • Better decision making • Enhanced communication among stakeholders. • Provides a single integrated view of cost and schedule performance, simplifying complex project tracking.
- 21. Challenges in Implementing EVM Initial Setup and Training Data Accuracy and Consistency Resistance to Change Setting up EVM requires a clear definition of project scope and WBS, which can be time- consuming. Training the team to understand EVM concepts and tools is also critical. Accurate and consistent data entry is essential for reliable EVM outputs. Inconsistent data can lead to incorrect performance evaluations and misguided decision- making. Implementing EVM might face resistance from team members used to traditional management methods. Communicating the benefits and integrating EVM gradually can help mitigate resistance.
- 22. Metric Formula Interpretation Planned Value (PV) Σ (Planned % Complete) * BAC Shows expected progress Earned Value (EV) Σ (Actual % Complete) * BAC Shows actual progress Actual Cost (AC) Σ Actual Costs to date Shows real expenditure Cost Variance (CV) EV - AC Positive indicates under budget Schedule Variance (SV) EV - PV Positive indicates ahead of schedule Cost Performance Index (CPI) EV / AC >1 indicates cost efficiency Schedule Performance Index (SPI) EV / PV >1 indicates schedule efficiency EVM Metrics in Tabular Form
- 23. Jai Hind