Earned Value Analysis: Why?
E arned value analysis (or earned value management) is a widely used method for measuring the performance of projects. These three areas are considered in this method:
The following core questions can be answered with the EVA:
- Is our plan on schedule, are we late?
- When will the project be completed based on the current status?
- Are we over or under budget (over/underspent)
- What is the estimated cost upon completion of the project?
- How efficiently do we use our resources?
In order to set up the EVA, the following requirements are necessary:
- Precise baselining of the planned values (time, costs and scope) from a WBS , plan milestones and assign costs
- Precise actual cost information: real-time actual data, clear differentiation between booking types (outsourcing costs, man-days, software licenses…)
- Precise progress measurement: degree of completion calculated based on clear work/scope artifacts (e.g. user stories in agile teams)
- Realistic estimates of completion collected by the project team
- Budget at Completion – BAC: Total cost of the project
- Planned Value – PV (aka : Budgeted Cost of Planned Works – BCWS): The amount of work in € that needs to be performed according to the schedule:
PV = BAC * Planned degree of completion in %
- Planned Value – EV (also called : Budgeted Cost of Work Done – BCWP): The amount expressed in € for the work actually done:
EV = BAC * completed degree in %
- Actual costs – AC (also: Actual Cost of Work Performed (ACWP): The sum of all costs actually posted (in €)
The quality of the baseline for the earned value analysis is a key success factor. The following procedure might be helpful:
- Define the initial scope of work based on the project brief
- Document all achievements in the WBS to achieve 100% visibility at a high level
- Deviation from all required work packages that serve the services
- Assign activities to work packages, define milestones and set the schedule
- The short-term work packages should contain more detail than the long-term packages.
- If a roadmap plan is in place, the WBS should be linked to it
- Estimate the costs for the entire project duration
- Estimate detailed short-term activities
- Appreciate long-term work packages
- Create a budget baseline
- A BAC is defined for the entire project
- A BAC per fiscal year is defined if this view is required for the EVA
- A PV curve is available
- CV (cost variance) = EV-AC
- SV (schedule deviation) = EV – PV
- CPI (Cost Performance Index) = EV / AC
- CPI> 1: Budget on track / underspent
- CPI 1: Overbudget / overspent<
- SPI (Schedule Performance Index) = EV/PV
- SPI 1: Schedule on track>
- SPI< 1: Appointment delay
- EAC (estimate upon completion) = BAC / CP