earned value analysis

The Practical Benefits of EVA.
The major problem with a simple variance analysis approach to project monitoring is the amount of time it takes to establish actual costs. Earned value analysis, or EVA, represents a practical approach to measuring the progress of a project against the plans and this approach is based on variance analysis. Since EVA relies on the measurement of the actual amount of work that has been done at a given date and the multiplication of this by the associated cost rates, many of the delays associated with variance analysis can be eliminated. Earned value analysis is an approach that has been widely adopted, for example it is central to the Cost/Schedule Control System (CS squared) widely used by US government departments.

Earned value analysis has several advantages; it compares like terms and is quick to apply in practice - a single piece of paper can often adequately summarize the progress of the project. It requires the ongoing measurement of the actual work done, which is normally taken from timesheets. The useful work completed also requires measurement, normally by physical observation. Earned value analysis should reflect all of the significant non-productive manpower costs associated with the project - for example costs incurred for project management and administration should be factored in to give a realistic figure.

Tasks that have not been started or that have been completed are relatively easy to quantify in terms of earned value. However, for tasks which have started but are not yet complete the situation is less clear and the problem of quantifying the earned value is compounded if tasks of long duration are involved. Therefore EVA is made easier by having a larger number of shorter tasks in the plan.

The Earned value analysis Variables.
The earned value approach to project control overcomes the problem of managers making decisions based on isolated information. The three basic variables relating to budgetary and actual costs are defined on this screen. These variables can be used to analyze the project, at any level, to establish a variety of useful parameters.
The Budgeted Cost for Work Scheduled (BCWS) is the value of work that should have been done at a given point in time. It indicates the budget and work targets at a given point.
The Budgeted Cost for Work Performed (BCWP) is the value of work actually done at a given point in time. It takes the work that has been done and the budget for each task and indicates what portion of the budget should have been spent to achieve it. This variable is sometimes referred to as Earned Value.
The Actual Cost for Work Performed (ACWP) is the actual cost of the work done and it may vary from that budgeted. ACWP is the amount reported as actually expended in completing the work accomplished within a given time period.
Earned Value = percentage complete multiplied by the budget, as defined by the Budgeted Cost for Work Scheduled (in either cost or man-hour terms).
Cost Variance. Cost variance, is a measure of the deviation between the earned value and the actual cost of the work performed.

If, at a specific point in time, a project has a BCWP of $25,000 and an ACWP of $30,000 then it has a cost variance of minus $5,000 and a percentage variance of -20%. In other words it is overspent by $5,000 or 20%. Schedule variance (cost), is a measure of the deviation between the actual progress and the planned progress. This is usually measured in units of cost rather than time.

If, at a specific point in time, a project has a BCWP of $25,000 and a BCWS of $30,000 then it has a schedule variance (cost) of minus $5,000 and a percentage variance of -16.6%. In other words it is behind schedule by 16.6%. The conversion to a percentage is done to avoid confusion, that is, the use of cost units to represent schedule variances.

Determining Project Status.
In a sample project, where the scheduled expenditure is $50,000 per week for the first four weeks, the following data is available:
BCWS = $200,000 and; ACWP = $170,000
From these two parameters alone, any one of a number of possible explanations exists as to the status of the project.
For example, the project may be on schedule but under-spending or it may be behind schedule and over-spending. It is only when the earned value (BCWP) is known that the status of the project can be determined.
If we know that the BCWP is $150,000, this means that we can then calculate both the Percentage Cost Variance and the Percentage Schedule Variance.
This means that the project is 25 percent behind schedule and 13.3 percent over-spent.

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