What Is the Earned Value Analysis - Assignment Example

EVA & EVM COURSE WORK INTRODUCTION There are three fundamental metrics of EVA, and the three basic measures needed to perform Earned Value Analysis on a project are based on COST ESTIMATES, and ACTUAL COSTS. PROJECTED VALUE (PV) PV is based on the following assumption. How much did we expect to pay for the work that was scheduled? (BCWS) Here it is known as BCWS, or Budgeted Cost of Work Scheduled This is the sum of for planned work that was scheduled to be earned up to a certain point. EARNED VALUE (EV) EV is based on the following assumption. How much did we expect to pay for the work that was actually done? (BCWP) It is known as the EARNED VALUE, this is an important measure of all project. It is called the BCWP, or Budgeted Cost of Work Performed. Other interpretations include the following. The estimated value of the work performed up to a certain point. If it is compared to the BCWS, we will be able to compare the amount of work planned with the amount of work actually accomplished and get a measure of the project's performance. (Adamczyk, Walter F (1989). "EV ­ Not Only for Large Projects AACE Transactions, pp. J.2.1­J.2.5) The earned value is based on what we thought it would cost to have certain work done. ACTUAL COST (AC) What was the actual cost of the work that was completed? (ACWP) This important question is answered with the ACWP, or Actual Cost of Work Performed WP-1 Actual Current Output = 5000 Budgeted Unit Cost = £25/widget BCWP = 5000 widgets x £25/widget budgeted = 125000 ACWP: What was the actual cost of the work that was completed? This important question is answered with the ACWP, or Actual Cost of Work Performed. Actual Current Output = 5000 Actual Unit Cost = £25/widget ACWP = 150 widgets x $.60/widget actual = £125000 EARNED VALUE ANALYSIS: This can be assimilated as SV: Schedule Variance = BCWP - BCWS (The negative factor given here means behind schedule) Question1: Are we ahead or behind production schedule?       SV = BCWP - BCWS = -£25 (negative, so behind schedule) SPI: Schedule Performance Index (the RATE you are ahead of or behind schedule) = BCWP/BCWS (Less than 1 means behind schedule). Question2: How far ahead or behind schedule are we?       SPI = BCWC/BCWS = 125000 (LT 1, so behind schedule) CV: Cost Variance is measured as follows: If BCWP > ACWP, the project is UNDER budget If BCWP < ACWP, the project is OVER budget Question: 3 Are we on or off budget?       CV = BCWP - ACWP = -£125000-125000 = 0 (here right budget .i.e., as per the planning process.) CPI: Cost Performance Index (the rate you are over or under cost) = BCWP / ACWP (less than 1 means over budget) Question 4: How far on or off budget are we?       CPI = BCWP / ACWP = 0 (0 means right healthy budget) PROJECT FORECAST: EAC: Estimate at Completion = TYPE I: BCWP at a point + Estimates to completion. TYPE II: The ratio of BAC / CPI TYPE III :( Wilkins) [(BAC - BCWP)/CPI] + ACWP Question 5: At the rate going, how much will all of this cost? This is a SIMPLIFIED estimate of EAC       EAC = BAC / CPI = -£125000/ 0 = 0 VAC: Variance at Completion = | BCWP - ACWP | = (forecast) of final cost variance-NUETRAL HERE –ZERO. Question 6: How much over or under budget will we be? VAC = BAC - EAC How long will the project really take?       Schedule at Completion = 40 / SPI A SIMPLE EARNED VALUE CALCULATOR EXAMPLES 1 2 ON TIME 3 4 PV-Projected value(BCWS) 100 100 100 100 100 EV-earned value(BCWP) 125000 125000 125000 125000 125000 AC-ACWP 0 125000 125000 125000 125000 BAC-budget at completion 5000 5000 5000 5000 5000 1. On Budget / Behind Schedule -NEGATIVE POSITION 1. You spent what you budgeted in this time period 2. You got less work was received than you thought 3. Where are you going to get the money to finish? (Note - REMEMBER BROOKS LAW) 2. MIXED POSITION - Under Budget/Behind Schedule. 1. You are falling behind on production, but the cost of what you are spending per unit is less than what you budgeted. 2. You may have opportunity to apply these "excess resources" to make up for the lag in production, e.g., overtime. 3. Will the excess on per unit continue and provide enough to make up schedule? REMEMBER BROOKS' LAW (Antvik, Sven (1998, October). "Earned Value Management (EVM) - A 200Year Perspective" Proceedings. Project Management Institute.) (3) BAD POSITION - Over Budget / Behind Schedule. 1. You spent more resources to accomplish less than expected 2. No time and no money are left (4) POSITIVE/GOOD POSITION - Under Budget / Ahead of Schedule. 1. You spent less resource to accomplish more than expected. 2. Time and money available. Limitations of EVM Significantly, EVM has no scope to rate project quality, so it is possible for EVM to indicate a project is under budget, ahead of schedule and scope fully executed, but still have unhappy clients and ultimately unsuccessful results. In fact, EVM is only one tool in the project manager's toolbox to analyse the situation in a healthy way. ( Fleming, Quentin W (1983) Put Earned Value Into Your Management Control System. Columbus, Ohio: Publishing Horizons, Inc.) As it is a plan where quantification is required, a project plan, it is often perceived to be inapplicable to discovery-driven. To say an example, it may be impossible to plan certain research projects well in advance, as research reveals some opportunities and actively eradicate others. Nevertheless, another school of thought points out that all work can be planned well in advance, even if in weekly time boxes or other short increments. Thus, the challenge is to create agile or discovery-driven implementations of the EVM principle, and not simply to reject the idea of measuring technical performance objectively. Executing EVM in fast-changing work environments is, in fact, an area of project management research. Conventional EVM is not intended for non-discrete -continuous - effort. In conventional l EVM standards, this effort is called as the level of effort (LOE). If a project plan like this contains a significant portion of LOE, and the LOE is further intermixed with discrete effort, EVM results will be contaminated. This is another area of EVM research in particular. Conventional definitions of EVM typically assume that project accounting and project network schedule management are pre- requisites to achieving any benefit from EVM. There are a large number of projects don't satisfy either of these prerequisites, but they too can benefit from EVM, as described for simple implementations, as stated above. There are a number of other projects can be well planned with a project network, but do not have access to true and timely actual cost data. In practice, the collection of true and timely actual cost data can be the most difficult aspect of EVM. Projects like this can benefit from EVM, as earlier described for intermediate implementations, and Earned Schedule. EVMS What is Earned Value Management System Schedule performance measurements and project cost and should really be managed as not as separate entities but as integrated elements.  Think that the budget spend plan shows over spending and the schedule shows milestones slipping, one can know it may be in trouble, but there will have no way to make a quantitative assessment even if the trouble is very severe. It is solved by providing an accurate picture of spending and accomplishments related to a baseline plan.  This enables you to quickly form conclusions about the project team's staffing levels and productivity, as well as giving insight into areas of the WBS where the problems are occurring.  I will never run a project without at least applying EVM principles if not having an informal or formal EVM tracking system in place. Previously, EVM has been called Cost/Schedule Control System (C/SCS) or, for the old-timers, or C-Spec, after the stipulated standards that originated the approach. Earned Value Management provides an integrated view of cost and schedule performance.   If it is not tracking earned value, it is really have no idea what is going on with the project. In order to understand the basics of EVM: EVM compares three pieces of information: 1. What is Planned Value? PV can be defined as: How much work you planned to have accomplished by now (in dollars or hours) called the Planned Value; 2.What is Actual Cost? Actual Cost can be defined as: How much you have actually spent by now called Actual Cost; and the value, in terms of your baseline budget, of the work accomplished by now called the Earned Value. The first two pieces of data are compared to the Earned Value in terms of differences and ratios, to result in variances and performance indexes.  That is the essence of EVM; the rest is details. (Cressman, Kenneth R (1988, November). "The Performance Measurement System: An Overview of Aerospace Program Control." In Control 2:7­12.) What are the he Dreaded EVM Formulas EVM calculations as in terms of business proportions, remembering formulas, or for you Latin scholars - formulae, is a way to make things more complicated and obscure, although some may find it comforting to memorize formulas until they are getting known.  If you understand the following explanation, you will not need to think in terms of formulas.   Earned Value -The thing to remember is that Earned Value is the new kid on the block, so all the basic calculations involve differences or ratios with respect to the key word Earned Value. Now all these can be summarised as: 1 The difference between Earned Value and your plan (PV) is Schedule Variance, 2. The difference between Earned Value and your spending (AC) is Cost Variance, 3. The ratio of Earned Value to plan (PV) is your Schedule Performance Index, 4. The ratio of Earned Value to cost (AC) is your Cost Performance Index. You can figure out what is subtracted from what by remembering that positive variance is desirable or good and negative is unfavourable or bad. So one can figure out what is on top of an EVM ratio, by remembering that >1 is favourable and Read More