Introduction to Earned Value : Project Management Tool

Earned Value : a Project Management Tool

Earned Value as a means of tracking project progress is widely used on many software projects. It aims to give a clear picture of the status of a project in terms of cost and schedule. Earned Value is another tool in the Project Manager’s toolset.

This article describes what Earned Value (EV) is and the basics steps to follow when applying EV on a project.

Table of contents

What is Earned Value?

EV is a project management tracking technique for reporting the status of a project in terms of schedule and budget to answer the following questions:

  • Are we on schedule?
  • Are we on budget?

The aim of this technique is to provide a quick understanding of the project status for stakeholders.

To use EV, the project is broken down into a number of partially ordered work units to be completed. Each work unit is assigned a planned budget (resource level) and schedule (when to happen). As the project progresses the status of each work unit is monitored as follows:

  • Is the work unit complete?
  • If yes, how much effort was required to complete

Note, partially completed work units are not always counted towards completed progress. The objective of EV is to be clear on the current project status. However, in some cases once a work unit is started 50% value is automatically earned with the remaining 50% added on completion.

In theory, at anytime during the project lifecycle, EV can be applied to determine project status as over/under budget and over/under schedule.

Project management : Earned value

Earned Value Metrics

Using earned value, the project status is expressed in the following terms:

  • Cost Variance – difference from plan on cost for a period (over or under budget)
  • Schedule Variance – difference from plan on work completed (over or under schedule)
  • Cost Performance Index (CPI) – cost indicator for the work actually completed
  • Schedule Performance Index (SPI) – schedule indicator for the work actually completed

These are calculated using the following:

  • ACWP – Actual cost of work performed (what is cost)
  • BCWP – Budgeted cost of work performed (what it should have cost)
  • BCWS – Budgeted cost of work scheduled (amount that should be completed)

Therefore:

  • Cost Variance = BCWP – ACWP
  • Schedule Variance = BCWP – BCWS
  • Cost Performance Index = BCWP/ACWP
  • Schedule Performance Index = BCWP/BCWS

Earned Value Example

Step 1: Create Planned Value

For all work units determine a common earned value unit and assign a value to each work unit. The unit of measurement is arbitrary (dollars, man-days…). The following table shows an initial plan of the work units and the value associated with each.

WU1 WU2 WU3 WU4 WU5 WU6 WU7 WU8 Total
Planned Value 10 15 8 12 6 8 9 10 78

Step 2: Calculate the earned value

As the project progresses, value is earned for each work unit completed in the same way as it was planned. The difference from planned and actual is recorded and referred to as the schedule variance. For each completed work unit the full value is earned.

WU1 WU2 WU3 WU4 WU5 WU6 WU7 WU8 Total
Planned Value 10 15 8 12 6 8 9 10 78
Earned Value 10 15 8 12 8 9 62
Schedule Variance 0 0 0 0 -6 0 0 -10 -16

 

For this case work units 5 & 8 are not completed and therefore earn no value for this period.

Step 3: Calculate the actual cost

For each work unit completed calculate the actual cost expended to complete and compare with the planned cost.

WU1 WU2 WU3 WU4 WU5 WU6 WU7 WU8 Total
Earned Value 10 15 8 12 8 9 62
Actual Cost 12 18 8 10 14 12 73
Cost Variance -2 -3 0 +2 0 -6 -3 0 -11

Negative variance indicates more was spent than planned. Work unit 5 & 8 have no cost as they are not completed and therefore have not earned any value yet and cannot be taken into consideration.

Step 4: Calculate Earned Value

BCWS = 78

ACWP = 73

BCWP = 62

Cost variance = 62 – 73 = -11

Schedule variance = 62 – 78 = -16

CPI = 62/73 = 0.84

SPI = 62/78 = 0.79

This project is currently behind schedule by 21% and over-budget by 16%!

Conclusion

It is important to note that earned value relies on the accuracy of initial estimates. However, as is the case with any software development, high accuracy planning is not possible in the early stages of any project. Software projects do not have a predictive lifecycle and this must be recognised during the planning and development processes.

Earned value therefore should not be used as an absolute measure, particularly during the early stages of a project. However, through a process of re-estimation during the project lifecycle, greater accuracy of estimates for project completion will be possible and therefore earned value will yield more accurate results.

Resources

 

Liemur provides Software Development Services within UK and with its nearshore branch in Budapest.

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The diagram used to illustrate this article is the © Copyright all rights reserved March Limited.

 

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