Earned Value Technique is an excellent way to track the Project Progress against the Project Plan.

Earned Value Technique

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It’s a method of objectively measuring project performance against the Project baseline. Result from an Earned Value analysis indicate deviation of the Project from cost and schedule baselines.

Let me quickly ask you what is a Baseline? I have already explained this earlier..but just to provide a quick recap…baseline means first approved value. So schedule baseline means, the first approved Project Schedule.

There are various terms used in Earned Value Techniques. All these terms are listed in this slide. Please go through the same. They are quiet self explanatory.

For example, PV, meaning Planned Value, is the Estimated Value of the Work Planned to be done. This value is measured in terms of currency, say dollar. So, if planned value is $340, it was planned to do work worth 340 dollars.

But, how do you calculate Earned Value? It’s quite simple. Just add the budget allocated to each of the activities that have completed at that point in time. The resulting value is Earned Value at point of time.

All other parameters listed in this slide are also measured in terms of currency only.

Earned Value Formula

Now that you have gone through the Earned Value Terms, Let’s look at the formulas involved in calculating the Earned Value.

Here again, all the formulas are listed in the slide along with their explanation. Remember to note that Negative cost variance means that the project is over budget, positive means the project is under budget.

Similarly, Negative schedule variance means that project is behind schedule where as Positive schedule variance means that project is ahead of schedule.

The next two parameters i.e. Cost Performance Index (CPI) and Schedule Performance Index (SPI) are also quiet important parameters. Their value varies between 0 and 1.

So, if CPI is say 0.8, it means that we are getting 80 cent out of every dollar spent in the Project.

If, SPI is say 0.9, it means that project is progressing at only 90% of the speed originally planned.

The next parameter is Estimate At Completion. So, at any point of time during the project execution, if it is required to know how much the project would actually cost by the time its gets completed, just divide the Budget At Completion by the Cost Performance Index.

What is Budget At Completion? It’s just the Budget of the Total Project.

The next parameter is Estimate to Complete, which is how much more would the project cost from this point onwards. This is calculated simply by subtracting Actual Cost from the Estimate at Completion.

Also, Variance at Completion can be calculated by subtracting Estimate At Completion from the Budget At Completion.

Earned Value Problem Example

Let’s take the example of a Project to build a compound wall. It’s a four side wall and each side is planned to take one day to build and the budget to build each side of the wall is 500 dollar. The walls are planned to be completed one after the other.

Today is the end of day 3; calculate the CPI and SPI of this project.

Now, as you can see in the slide, at the end of the day 3, the status of the Project is:

• Side 1 of the wall is completed within the planned time and budget.
• Side 2 was planned to get over by 2nd day, but it actually gets completed by 3rd day. It costed $700 instead of $500 to get completed.
• Side 3 is only 50% done, thought it was supposed to get completed by 3rd day. It costed $300 instead of $250 to get completed.
• Work on Side 4 has not yet started and it was not even planned to get started.

Based on the above information, we will calculate the CPI and SPI of the Project in the next slide.

Earned Value Problem Solution

To calculate the Planned Value, PV, you just need to add the amount of work that was supposed to be done by 3rd day. Three sides were supposed to be done. The budget to complete each of the three sides was $500.

So the planned value, PV, is 500+500+500= $1500.

But, what is actually done by 3rd day is, two sides completely done and third side is only 50% done, hence the Earned Value, EV is 500+500+250=$1250

The actual cost, AC, of doing the work is 500+700+300= $1500.

Now, since we know, PV, EV and AC…calculating CPI and SPI is pretty straight forward. Just put these into the formulas we learn earlier.