PROJECT COST

MANAGEMENT
WEEK 11: EARNED VALUE ANALYSIS
 EARNED VALUE ANALYSIS

• EARNED VALUE ANALYSIS IS A TECHNIQUE THAT INTEGRATES SCOPE, SCHEDULE, AND COST
INFORMATION INTO SINGLE MEASURES TO ASSESS THE STATUS OF PROJECT PERFORMANCE.
• A FULL-SCALE IMPLEMENTATION OF AN EARNED VALUE MANAGEMENT SYSTEM IS A COMPLEX
UNDERTAKING.
• TO CONDUCT AN EARNED VALUE ANALYSIS YOU NEED TO HAVE PLANNED THE WORK SO THAT
EACH WORK PACKAGE [THE LOWEST LEVEL OF THE WORK BREAKDOWN STRUCTURE (WBS)] HAS
COST AND DURATION ESTIMATES.
• THE WORK IS THEN SCHEDULED AND THE COSTS ARE ALLOCATED TO THE TIME PERIOD IN WHICH
THE WORK IS SCHEDULED.
• THE INFORMATION ON THE NEXT SLIDE SHOWS THE WORK PACKAGES FOR LANDSCAPING A
BACKYARD. THE WORK PACKAGES ARE ON THE LEFT, THE DURATION (IN DAYS) IS SHOWN IN THE
SHADED AREAS, AND THE COSTS ASSOCIATED WITH THE WORK ARE INDICATED IN THE DURATION.
 EARNED VALUE ANALYSIS
LANDSCAPING A BACKYARD
 EARNED VALUE ANALYSIS

• THIS INTEGRATION OF THE APPROVED SCOPE, SCHEDULE, AND COST FOR THE
PROJECT IS CALLED A PERFORMANCE MEASUREMENT BASELINE (PMB).
• THE PMB IS USED TO MEASURE COST AND SCHEDULE PROGRESS.
• THE PMB SHOWS THE PLANNED VALUE FOR EACH WORK PACKAGE AT A GIVEN
POINT IN TIME.
• PLANNED VALUE (PV) IS THE AUTHORIZED BUDGET ASSIGNED TO SCHEDULED
WORK.
 EARNED VALUE ANALYSIS

• THE PLANNED VALUE FOR THE DECK FRAME AT THE END OF DAY 4 IS $2,400.
• ASSUMING AN EVEN DISTRIBUTION OF WORK, THE PLANNED VALUE FOR THE
DECK SURFACE IS $800 AT THE END OF DAY 6 (ASSUMING THAT EACH DAY $400 OF
WORK IS SCHEDULED).
• THUS, THE CUMULATIVE PV AT THE END OF DAY 6 IS $3,200.
 EARNED VALUE ANALYSIS
ONCE THE PMB IS COMPLETE YOU CAN START MEASURING PROGRESS AGAINST IT.

1. IDENTIFY THE VALUE OF THE WORK THAT WAS ACCOMPLISHED DURING THE WORK PERIOD. THIS IS CALLED
THE EARNED VALUE. IN THE EXAMPLE ABOVE, IF THE DECK FRAME WAS FINISHED AT THE END OF DAY 3, THE
EARNED VALUE (EV) AT THE END OF DAY 3 WOULD BE $2,400. THAT IS BECAUSE THE VALUE OF THE DECK
FRAME IS $2,400 AND IT IS COMPLETE, THEREFORE YOU HAVE EARNED $2,400 WORTH OF VALUE.
2. ANALYZE THE SCHEDULE PERFORMANCE BY COMPARING THE EARNED VALUE WITH THE PLANNED VALUE. IF
YOU EARNED LESS THAN YOU PLANNED, YOU ARE BEHIND SCHEDULE. IF YOU EARNED MORE THAN YOU
PLANNED, YOU ARE AHEAD OF SCHEDULE. THE MATHEMATICAL EQUATION IS EV – PV = SCHEDULE VARIANCE
(SV).
3. DETERMINE THE AMOUNT YOU SPENT TO ACCOMPLISH THE WORK. YOU CAN DO THIS BY LOOKING AT
INVOICES, HOURS SPENT AND THE RATE PER HOUR, BILLS OF MATERIAL, AND ANY OTHER COSTS THAT WENT
INTO DEVELOPING THE BUDGET FOR THE WORK. THE AMOUNT YOU SPENT IS CALLED THE ACTUAL COST (AC).
4. ANALYZE THE COST PERFORMANCE BY COMPARING THE EV AND AC. IF YOU SPENT MORE THAN YOU EARNED,
YOU ARE OVER BUDGET. IF YOU SPENT LESS THAN YOU EARNED, YOU ARE UNDER BUDGET. THE
EARNED VALUE ANALYSIS
EARNED VALUE ANALYSIS
 PERFORMANCE INDEX
• THE PERFORMANCE INDEX USES INFORMATION FROM EARNED VALUE ANALYSIS
TO DETERMINE THE SCHEDULE AND COST PERFORMANCE EFFICIENCY.
• THE SCHEDULE PERFORMANCE INDEX (SPI) IS A MEASURE OF SCHEDULE
EFFICIENCY SHOWN AS THE RATIO OF EARNED VALUE TO PLANNED VALUE.
• IT TELLS US THE RATE AT WHICH WE ARE PROGRESSING COMPARED TO THE
PLANNED RATE AS OF A PARTICULAR POINT IN TIME.
• THE COST PERFORMANCE INDEX (CPI) IS A MEASURE OF COST EFFICIENCY
SHOWN AS THE RATIO OF EARNED VALUE TO ACTUAL COST.
• IT TELLS US HOW MUCH WE ARE GETTING FOR EVERY DOLLAR WE PUT INTO THE
PROJECT AS OF A PARTICULAR POINT IN TIME.
 PERFORMANCE INDEX

1. TO CALCULATE THE SPI, START WITH THE EARNED VALUE (EV) AND DIVIDE BY
THE PLANNED VALUE (PV). THE EQUATION IS EV/PV = SPI.
2. TO CALCULATE THE CPI, START WITH THE EARNED VALUE (EV) AND DIVIDE BY
THE ACTUAL COST (AC). THE EQUATION IS EV/AC = CPI.
PERFORMANCE INDEX
 PERFORMANCE INDEX
• PERFORMANCE INDEXES CAN BE USED WITH ESTIMATE TO COMPLETE AND ESTIMATE
AT COMPLETION.
• THE COST PERFORMANCE INDEX IS THE SINGLE BEST INDICATOR OF THE OVERALL
PROJECT HEALTH.
• YOU MAY BE ABLE TO MAKE UP SCHEDULE VARIANCES, BUT RARELY CAN COST
VARIANCES BE CORRECTED.
• IF THERE ARE SIGNIFICANT VARIANCES AT THE START OF THE PROJECT, IT IS LIKELY
THEY WILL ONLY GET WORSE OVER TIME.
• THE REASONING IS, IF YOU ARE HAVING TROUBLE ESTIMATING AND ACCOMPLISHING
THE IMMEDIATE HORIZON IN WORK, YOU WILL HAVE MORE TROUBLE CALCULATING
THE FURTHER-OUT WORK.
 PERFORMANCE INDEX

• RATHER THAN FINISHING 75 PERCENT OF THE PROJECT AND DISCOVERING YOU

ARE GOING TO RUN OUT OF FUNDS BEFORE COMPLETION, USING PERFORMANCE
INDEXES WILL PROVIDE EARLY WARNING SIGNALS TO ALLOW FOR CORRECTIVE
ACTION.
• PERFORMANCE INDEXES ARE USED TO IDENTIFY THOSE AREAS THAT NEED THE
MOST ATTENTION.
• THE LOWER THE PERFORMANCE INDEX, THE MORE TROUBLE THE DELIVERABLE
OR PROJECT IS IN.
 ESTIMATE AT COMPLETION
• ESTIMATE AT COMPLETION (EAC) IS A FORECASTING TECHNIQUE THAT ESTIMATES THE
TOTAL FUNDING NEEDED FOR THE PROJECT, DELIVERABLE, CONTROL ACCOUNT, OR
WORK PACKAGE.
• IN ESSENCE, THE EAC IS THE ESTIMATE TO COMPLETE (ETC) PLUS ANY EXPENDITURES
ALREADY INCURRED.
• HERE ARE THE ABBREVIATIONS FOR THE EARNED VALUE TERMINOLOGY USED IN THIS
TECHNIQUE: • EAC = ESTIMATE AT COMPLETION
• PV = PLANNED VALUE
• CPI = COST PERFORMANCE INDEX
• AC = ACTUAL COST (EV/AC)
• EV = EARNED VALUE • SPI = SCHEDULE PERFORMANCE INDEX
• BAC = BUDGET AT COMPLETION (EV/PV)
ESTIMATE AT COMPLETION
 ESTIMATE AT COMPLETION

IF YOUR ORIGINAL ESTIMATES WERE ACCURATE:

1. CALCULATE THE TOTAL VALUE OF ALL WORK COMPLETED ON YOUR PROJECT (YOUR
EARNED VALUE, OR EV).
2. SUBTRACT THAT AMOUNT FROM THE TOTAL BUDGET (BAC).
3. ADD THE ACTUAL COSTS INCURRED TO DATE (AC).
THE RESULTING AMOUNT IS YOUR ESTIMATE AT COMPLETION FOR THE PROJECT.

IF YOUR WORK REMAINING WILL CONTINUE AT THE SAME COST VARIANCE AS THE
COMPLETED WORK:
• DIVIDE YOUR BUDGET AT COMPLETION (BAC) BY YOUR COST PERFORMANCE INDEX
 ESTIMATE AT COMPLETION

IF YOUR WORK REMAINING WILL BE IMPACTED BY YOUR COST AND SCHEDULE

PERFORMANCE:
1. CALCULATE THE TOTAL VALUE OF ALL WORK COMPLETED ON YOUR PROJECT (EV).
2. SUBTRACT THAT AMOUNT FROM THE TOTAL BUDGET (BAC) TO GET THE VALUE OF YOUR
WORK REMAINING.
3. MULTIPLY YOUR COST PERFORMANCE INDEX (CPI) TIMES YOUR SCHEDULE PERFORMANCE
INDEX (SPI) TO GET YOUR COST-SCHEDULE INDEX (CSI).
4. DIVIDE THE VALUE OF YOUR WORK REMAINING BY YOUR COST-SCHEDULE INDEX (CSI).
5. ADD YOUR ACTUAL COSTS INCURRED TO DATE (AC).
ESTIMATE AT
COMPLETION
 ESTIMATE TO COMPLETE
• ESTIMATE TO COMPLETE IS A FORECASTING TECHNIQUE THAT ESTIMATES THE FUNDING
NEEDED TO COMPLETE ALL THE REMAINING WORK.
• IT CAN BE PERFORMED FOR THE ENTIRE PROJECT OR FOR A DELIVERABLE, CONTROL
ACCOUNT, OR WORK PACKAGE.
• FORECASTS ARE USUALLY DEVELOPED WHEN YOU ARE IN THE MIDST OF A PROJECT.
• AT THAT POINT, YOU USUALLY HAVE MORE ACCURATE INFORMATION THAN YOU DID WHEN
YOU DEVELOPED YOUR INITIAL ESTIMATES.
• THEREFORE, THE MOST ACCURATE WAY TO DEVELOP AN ESTIMATE TO COMPLETE (ETC) IS TO
DEVELOP AN ESTIMATE FOR THE REMAINING WORK GIVEN WHAT YOU KNOW AT THE PRESENT
TIME.
• THE NEW ESTIMATE SHOULD TAKE INTO ACCOUNT LABOR RATES, PRODUCTION RATES, THE
PROJECT ENVIRONMENT, EXISTING STAFFING, RISKS, AND ANYTHING ELSE YOU KNOW ABOUT
 ESTIMATE TO COMPLETE

• DEVELOPING A NEW ETC CAN BE QUITE TIME CONSUMING ON A LARGE PROJECT.

• THEREFORE, YOU MAY WANT TO USE SOME OF THE MATHEMATICAL METHODS
OF DEVELOPING AN ESTIMATE TO COMPLETE.
• THE MATHEMATICAL METHODS ARE APPLIED WHEN USING EARNED VALUE
ANALYSIS AND USE THE SAME ABBREVIATIONS.
 ESTIMATE TO COMPLETE
HERE ARE THE ABBREVIATIONS FOR TERMS USED IN AN ETC CALCULATION:
AC = ACTUAL COST
EV = EARNED VALUE
BAC = BUDGET AT COMPLETION
CPI = COST PERFORMANCE INDEX

• THE FIRST CALCULATION ASSUMES THAT YOUR ORIGINAL ESTIMATES WERE ACCURATE AND
THAT THE FUTURE WORK WILL CONTINUE TO BE BASED ON ACCURATE ESTIMATES. IN THIS
CASE, YOUR ESTIMATE TO COMPLETE WOULD BE THE BUDGET LESS THE VALUE YOU HAVE
EARNED (ACCOMPLISHED) SO FAR.
THIS IS REPRESENTED AS ETC = BAC – EV.
 ESTIMATE TO COMPLETE

• THE SECOND CALCULATION ASSUMES THAT ANY COST VARIANCE YOU HAVE
EXPERIENCED THUS FAR WILL CONTINUE AT THE SAME RATE.
THIS IS REPRESENTED AS ETC = (BAC – EV)/AC.

IN ESSENCE, THIS FORECAST CALCULATES THE REMAINING WORK AND DIVIDES

BY THE CURRENT CPI TO DEVELOP A FORECAST OF THE FINAL COST, ASSUMING
THE FUTURE EXPENDITURES WILL OCCUR WITH THE SAME EFFICIENCY AS THE
PAST EXPENDITURES.
 ESTIMATE TO COMPLETE

IF YOUR ORIGINAL ESTIMATES WERE ACCURATE:

1. CALCULATE THE TOTAL VALUE OF ALL WORK COMPLETED ON YOUR PROJECT.
NOTE THAT THE TOTAL VALUE OF WORK COMPLETED IS NOT HOW MUCH YOU
PAID, BUT RATHER THE TOTAL OF THE BUDGETED VALUE OF THE WORK
COMPLETED. IN OTHER WORDS, THE SUM OF THE BUDGETS FOR THE WORK
YOU HAVE ALREADY ACCOMPLISHED.
2. SUBTRACT THAT AMOUNT FROM THE TOTAL BUDGET.
THE RESULTING AMOUNT IS YOUR ESTIMATE TO COMPLETE THE REMAINING
WORK.
 ESTIMATE TO COMPLETE

IF YOUR REMAINING WORK WILL CONTINUE AT THE SAME COST VARIANCE AS THE
COMPLETED WORK:
1. COMPLETE STEPS 1 AND 2 ABOVE.
2. DIVIDE THE VALUE OF THE WORK YOU COMPLETED (THE EARNED VALUE) BY
THE COST TO COMPLETE THE WORK (ACTUAL COST): EV/AC. THIS NUMBER IS
YOUR COST PERFORMANCE INDEX (CPI).
3. DIVIDE THE RESULT FROM STEPS 1 AND 2 ABOVE (VALUE OF THE REMAINING
WORK) BY THE CPI: (BAC – EV)/CPI
ESTIMATE TO COMPLETE
 TO COMPLETE PERFORMANCE INDEX
• THE TO-COMPLETE PERFORMANCE INDEX (TCPI) INDICATES HOW EFFICIENTLY YOU MUST
PERFORM FOR THE REST OF THE PROJECT TO MEET YOUR ORIGINAL BAC, OR A SPECIFIC
EAC.

• IT DIVIDES THE REMAINING WORK BY THE REMAINING FUNDS. IT IS THE RATIO OF THE
“WORK REMAINING” TO THE “FUNDS REMAINING.” THE FORMULAS ARE SHOWN BELOW:
BAC - EV
BAC - AC

BAC –EV
EAC – AC
 TO COMPLETE PERFORMANCE INDEX

• NOTICE THAT THE FIRST EQUATION USES THE BAC IN THE DENOMINATOR. USE THIS
EQUATION IF YOU WANT TO DETERMINE THE EFFICIENCY RATE AT WHICH YOU NEED TO
PERFORM IN ORDER TO MEET YOUR BUDGET.

• THE SECOND EQUATION USES EAC IN THE DENOMINATOR. USE THIS EQUATION IF YOU
WANT TO DETERMINE THE EFFICIENCY RATE AT WHICH YOU NEED TO PERFORM IN
ORDER TO MEET THE EAC NUMBER USED IN THE DENOMINATOR.

• THE TCPI TELLS YOU THE COST EFFICIENCY YOU MUST ACHIEVE FOR THE REST OF THE
PROJECT TO MEET THE TARGET (EITHER BAC OR EAC). IN OTHER WORDS, FOR EVERY
DOLLAR YOU SPEND YOU HAVE TO GET X AMOUNT OF VALUE, WHERE X = TCPI.
 TO COMPLETE PERFORMANCE INDEX

TO CALCULATE THE TCPI YOU WILL NEED:

• BAC (BUDGET AT COMPLETION)
• EAC (ESTIMATE AT COMPLETION, IF YOU ARE USING EAC AS A TARGET)
• EV (EARNED VALUE)
• AC (ACTUAL COST)
 TO COMPLETE PERFORMANCE INDEX

IF YOU WANT TO ACHIEVE YOUR ORIGINAL BUDGET ESTIMATE:

1. SUBTRACT YOUR EARNED VALUE (EV) FROM YOUR BAC TO GET THE VALUE OF
THE WORK REMAINING.
2. SUBTRACT YOUR ACTUAL COST (AC) FROM YOUR BAC TO DETERMINE THE
FUNDS REMAINING.
3. DIVIDE THE WORK REMAINING BY THE FUNDS REMAINING.
THIS GIVES YOU THE PERFORMANCE EFFICIENCY YOU MUST ACHIEVE TO DELIVER
AT THE ORIGINAL BUDGET ESTIMATE.
 TO COMPLETE PERFORMANCE INDEX

IF YOU WANT TO ACHIEVE AN ESTIMATE AT COMPLETION:

1. SUBTRACT YOUR EARNED VALUE (EV) FROM YOUR BAC TO GET THE VALUE OF
THE WORK REMAINING.
2. SUBTRACT YOUR ACTUAL COST (AC) FROM YOUR EAC TO DETERMINE THE
FUNDS REMAINING.
3. DIVIDE THE WORK REMAINING BY THE FUNDS REMAINING.
THIS GIVES YOU THE PERFORMANCE EFFICIENCY YOU MUST ACHIEVE TO ACHIEVE
THE ESTIMATE AT COMPLETION.
TO COMPLETE PERFORMANCE INDEX
 VARIANCE AT COMPLETION

• A VARIANCE AT COMPLETION (VAC) MEASUREMENT TELLS YOU THE DIFFERENCE

BETWEEN YOUR BUDGET AT COMPLETION (BAC) AND THE LATEST ESTIMATE AT
COMPLETION (EAC). THE EQUATION IS:
VAC = BAC - EAC
• THIS TELLS YOU THE AMOUNT OF FUNDING YOU WILL NEED OVER AND ABOVE
THE ORIGINAL BUDGET ESTIMATE.

1. CALCULATE AN ESTIMATE AT COMPLETION USING ONE OF THE EQUATIONS

SHOWN EARLIER.
2. SUBTRACT THE EAC FROM YOUR BUDGET AT COMPLETION.
VARIANCE AT COMPLETION
 REFERENCES

PMI, PROJECT MANAGEMENT BODY OF KNOWLEDGE

[PMBOK], (6TH EDITION), PMI (ISBN: 9781628251845)

SNYDER, C. (2018). A PROJECT MANAGER’S BOOK OF TOOLS AND

TECHNIQUES. WILEY.