The 8 Steps to Earned Value Analysis

NOVEMBER 10, 2016 BY BERNIE ROSEKE, P.ENG., PMP LEAVE A COMMENT

It’s amazing how many projects do not know their true status until near the end, when there is little
that can be done to ensure they finish on time or budget. The proper time to rigorously track project
status is at the beginning, not at the end.  This is when project risk can be managed and changes
made to get it back on track.

Earned value analysis is the project managementtool that is used to measure project progress. It

compares the actual work completed at any time to the original budget and schedule. It forecasts the
final budget and schedule and analyzes the path to get there. It gives you the essential early warning
signal that things are going awry.

There are two variables which the earned value method focuses on.

 Schedule (time)
 Cost
There are 8 steps to performing earned value analysis effectively.  It may seem like alot at first
glance, but for small projects this takes five minutes once you learn how to do it:

1. Determine the percent complete of each task.

2. Determine Planned Value (PV).
3. Determine Earned Value (EV).
4. Obtain Actual Cost (AC).
5. Calculate Schedule Variance (SV).
6. Calculate Cost Variance (CV).
7. Calculate Other Status Indicators (SPI, CPI, EAC, ETC, and TCPI)
 8. Compile Results
The first four steps represent an information gathering phase. The remaining steps are calculations
which give the project manager a glimpse into the current status of the project from
a budget and schedule perspective.

Before you get started, it is important to define appropriate project status points in which this
calculation is performed.  Weekly status meetings work very well for any size project, but whatever
time frame is used the important thing is to make sure these calculations are performed at that time.

Determine Percent Complete

To start the process, the percentage complete of each task needs to be determined.

Small tasks (80 hours or less) are often best done on a 0, 50, or 100% complete basis (not started,
in progress, or complete).  This brings the workload down to reasonable levels and prevents abuse
when project team members exaggerate, for example they might tell you a task is 80% complete
when it is really 50% complete.

For repetitive tasks you can also use progressive measures such as number of fence posts installed.

Determine Planned Value (PV)

Planned Value, also known as Budgeted Cost of Work Scheduled (BCWS), is defined as the
amount of the task that is supposed to have been completed.  It is in monetary terms as a portion of
the task budget.  For example let’s say that:

 The task budget is $5,000,

 The task start date is January 1, and
 The task finish date is January 10.
If it’s January 6 today, the task is supposed to be 60% complete. Therefore, PV = $5,000 x 60% =
$3,000.

Determine Earned Value (EV)

Earned Value, also known as Budgeted Cost of Work Performed (BCWP), is the amount of the
task that is actually complete.  It is, again, in monetary terms as a portion of the task budget.  For
example, let’s use the same example task.

 The task budget is $5,000, (same as above)

 The task start date is January 1, and (same as above)
  The task finish date is January 10.  (same as above)
Let’s say the actual percent complete of the task (step 1) is 40%. Therefore, EV = $5,000 x 40% =
$2,000.

Obtain Actual Cost (AC)

The Actual Cost, also known as Actual Cost of Work Performed (ACWP), as you might guess, is
the actual cost of the work.  Generally employee hours need to be converted into a cost, and all
project costs need to be added up, such as the following items:

 Labor
 Materials
 Equipment
 Fixed cost items, like subcontractors
Since most projects have these well defined via accounting or project management software, we will
not go into great detail here.  For the purposes of our example project let’s say the actual cost of the
example task is $1,500.

At this point the information gathering phase is complete. The following calculations represent the
application of the earned value analysis to keep your project on schedule and budget.

Calculate Schedule Variance (SV)

The Schedule Variance represents the schedule status of the project.

SV = EV – PV

In our above example the schedule variance is:  SV = $2,000 – $3,000 = -$1,000.

A negative schedule variance means the task is behind schedule.  A positive schedule variance
means it is ahead of schedule.  The amount can be compared to worker charge out rates or similar
metrics to get an idea of how difficult it would be to recover.

Calculate Cost Variance (CV)

The Cost Variance represents the cost status of the project.

CV = EV – AC

In our above example the cost variance is:  CV = $2,000 – $1,500 = $500.

A negative cost variance means the task is over budget.  A positive cost variance means it is under
budget.

Calculate Other Status Indicators

Although the SV and CV are the minimum requirement and work well for small projects, there are
other variables that are derived from them which you might want to calculate:

 Schedule Performance Index (SPI):  The schedule variance expressed in percentage terms,
for example, SPI = 0.8 means the project 20% behind schedule.
SPI = EV / PV

 Cost Performance Index (CPI): The cost variance expressed in percentage terms, for
example, CPI = 0.9 means the project is 10% over budget.
CPI = EV / AC

 Estimate at Completion (EAC):  The expected budget at the end of the project given the
variances that have already taken place. There are various ways to extrapolate this value but
assuming that the past variances are likely to persist:
EAC = AC + BAC – EV

 Estimate to Complete (ETC):  The expected cost to finish the rest of the project.
ETC = EAC – AC

 To Complete Performance Index (TCPI):  The required CPI necessary to finish the project
right on budget.  For example, TCPI = 1.25 means you need to find 25% efficiencies to finish on
budget.
TCPI = (BAC – EV) / (BAC – AC)
Compile the Results

Each metric is calculated for each individual task in the project. Therefore they need to be added up
into overall project variances to get the overall progress indicator for the project.  This represents
the total variance of the project and can be reported to management, clients, and stakeholders.

The results are as instantaneous as the input data, that is, if you input the percent complete as of
right now the status reported will be as of right now as well. It’s amazing how a small variance does
not cause anyone concern until they see it as a number, and it can be corrected before it becomes
more serious.

Interpreting the Results

The first two calculations (SV and CV) give you the basic indicator of project progress.  A negative
value indicates an undesirable situation.

 If the schedule variance (SV) is negative, you are behind schedule.

 If the cost variance (CV) is negative, you are over budget.
The amount of the variance can be compared to the project’s budget to see how concerning it is.
For example, a variance of $1,000 on a $100,000 project is not that concerning but a $10,000
variance might need some attention.  The variances can also be compared to employee charge out
rates or something similar, for example a $1,000 variance might require a person who’s earning
$50/hour to work 20 hours to recover.

In our example the schedule variance was -$1,000 and the cost variance was $500.  This means
that the project is behind schedule, but it is being performed efficiently and is cost-positive.  If an
worker charging $75/hr was performing the majority of this work, they are about 13 hours behind
schedule (although they will finish under budget).  Thus, we know that this task requires a couple
days of work over and above the regular schedule to get it back on track.

Graphing the results over multiple status points is a very helpful exercise.  Good project control often
means that the instantaneous project status snapshot is not as important as the trend the indicators
are making over time.  For example, if the SV has been increasing, then maybe the project will finish
on time even though it’s behind schedule today.

It is a well understood concept that if projects fall behind early they will tend to continue falling further
behind throughout their entire life. Earned value analysis will alert you if you are even one hour
behind and allow you to take the necessary remedial action. The value of this in producing
successful projects is almost without equal.
An Earned Value Example
JANUARY 25, 2016 BY BERNIE ROSEKE, P.ENG., PMP LEAVE A COMMENT

Earned value analysis is used to calculate the project status on two fronts:

1. Schedule. Is the project ahead of or behind schedule?

2. Cost. Is the project over or under budget?
Let’s say you are the project manager for the renovation of 3 hotel rooms.  The tasks are as follows:

1. Preparation.  Jan. 1 – Jan. 10, $5,000.

2. Room #1:  Jan. 10 – 20, $15,000.
3. Room #2:  Jan. 15 – 25, $15,000.
4. Room #3:  Jan. 20 – 30, $15,000.
5. Wrap-up:  Jan. 25 – 31, $5,000.
It’s Jan. 16 today and you want to know the project status.

Solution

The first step is to determine the following three variables for each task:

1. Planned Value (PV).  The amount of the task that is supposed to have been completed.
2. Earned Value (EV).  The amount of the task that is actually completed.
3. Actual Cost (AC).  The cost of the activity to date.
This is normally done by first estimating the percent complete of each task and then multiplying by
the budget.
Let’s say the preparation task is complete.  You figure you’re 20% complete Room #1 and 10%
complete Room #2, and you’ve spent $5,500 on preparation and $3,500 on Room #1.  The cost
must include all project costs, including wages if the project budget is responsible for them.

The initial table looks like this:

Task PV AC EV

$5,50
Preparation $5,000 $5,000
0

$3,50
Room #1 $7,500 $3,000
0

Room #2 $1,500 $0 $1,500

Room #3 $0 $0 $0

Wrap-up $0 $0 $0

The next step is to calculate the following two variables:

1. Schedule Variance.  SV = EV – PV.

2. Cost Variance.  CV = EV – AC.
These two variables give you the project status from the schedule and cost perspective.  Add a
column for each.  The table now looks like this.

Task PV AC EV Schedule Variance (SV) Cost Variance (CV)

Preparatio
$5,000 $5,500 $5,000 $0 -$500
n

Room #1 $7,500 $3,500 $3,000 -$4,500 -$500

Room #2 $1,500 $0 $1,500 $0 $0

Room #3 $0 $0 $0 $0 $0

Wrap-up $0 $0 $0 $0 $0

TOTAL -$4,500 -$1,000

Conclusions
Since the variances are both negative, the project is behind schedule and over budget.

The cost variance is minor, and maybe you can find $1,00 somewhere between now and the end of
the project.

But the schedule variance is significant for Room #1, about 50% of the task (it should be twice as far
along as it is).  The project as a whole is only 17% complete but is 8% behind schedule.  This is
significant and thus it is getting behind too early and finishing on time is beginning to be a concern. 
It’s all due to room #1, so it might be a good idea to secure some resources so the completion of
room #1 doesn’t hold up the others.