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Introduction to EVM - The Frosting, The Toppings, and The Cherry

July 21, 2007 | Author: admin | Filed under: Cost Management, Cost Estimating

Introduction to EVM - The Frosting, The Toppings, and The Cherry (#2 in the series Introduction to EVM)
By João Almeida

The first article in this series presented us with some good news and some bad news. But how much more productive and how much behind schedule were we? The EV technique presents us with the results by calculating:

  1. Cost Variance (CV): CV=EV-AC;
  2. Schedule Variance (SV): SV=EV-PV;

So in our case we saved 440€ in work (CV) and we are 880€ behind schedule (SV; and since we are one day late this actually is correct since it represents the value of a day work of the two resources). If we calculate only the Accounting Variance (AV) we would report 1360€ (PV-AC). What is the meaning of this value regarding project performance? Would it be better if we where less productive therefore decreasing AV? If you know please e-mail me because I don’t.

Therefore, we can draw the following conclusions:

  1. CV greater than 0; This means EV greater then AC representing a better productivity than planned (if you prefer it can be interpreted as greater speed of work);
  2. CV=0; This means EV=AC representing the planned productivity;
  3. CV lesser then 0; This means EV lesser than AC representing a worst productivity than planned (if you prefer it can be interpreted as lesser speed of work);
  4. SV greater than 0; This means EV greater than PV representing more work done than initial planned;
  5. SV=0; This means EV=PV representing that same work done as initially planned;
  6. SV lesser than 0;This means EV lesser than PV representing less work done than initial planned.

The Earned Value technique calculates also two indexes:

  1. CPI (Cost Performance Index)=EV/AC; Represents the level of productivity or speed of the work;
  2. SPI (Schedule Performance Index)=EV/PV; Represents the speed of evolution of the schedule;

From the usage of these indexes, we can draw the following conclusions:

  1. CPI greater than 1; productivity is greater than expected;
  2. CPI=1; productivity is the same as expected;
  3. CPI lesser than 1; productivity is lesser than expected;
  4. SPI greater than 1; schedule speed is greater than expected (ahead of schedule);
  5. SPI=1; schedule speed is equal to what was expected (on schedule);
  6. SPI lesser than 1; schedule speed is lesser than expected (behind of schedule).

Until now, we have been talking about the key values related to a task. But what about work packages? Let us assume the following example:

Gantt Chart

Since no resources are assigned to the Work Package, we can’t calculate AC, EV and PV directly. You can think of it this way, since the work performed on a work package is the same as the sum of all the work performed so far on the leaf tasks, AC, EV and PV is the sum of all the AC, EV and PV of the tasks that are contained by the work package.

In the case of CV and SV we can either calculate it by using the rollup sum of AC, EV and PV or we can rollup sum CV and SV of the leaf tasks of the work package.

For CPI and SPI we have to calculate it by using AC, EV and PV of the work package. We cannot rollup sum the task indexes.

Until now, we have assumed that the work actually done (EV) is the same as planned. But in some cases it might be different. The way EV is calculated is the planned budget of the task times the physical percent complete. The physical percent complete is an estimation of the resources working on a task and must be given when inserting the work hours in the timesheet.

As an added bonus, Earned Value enables us to predict future project performance based on the CPI and SPI.

To predict future project cost we can calculate two indicators:

  1. Estimated Cost At Completion Optimistic (ECAC Optimistic): Planned Cost/CPI. This assumes that the resources productivity will be constant.
  2. Estimated Cost At Completion Likely (ECAC Likely): AC+(Planned Cost-EV)/(CPI*SPI) if SPI between 0 and 1. This assumes that if a task is late than the productivity will be affected and is equal to CPI*SPI for the remaining work (Planned Cost-EV). Otherwise ECAC Likely=ECAC Optimistic.

To predict future project duration the indicator is Estimated Duration At Completion (EDAC) and is equal to Planned Duration/SPI.

As a rule of thumb, you should only use the predictions if the task progress is at least 15% or 20%.

Because SPI and CPI at the leaf task level, don’t present much information due to short duration and different resources assigned to different tasks predictions should be done at an intermediary level, usually at the phase level. It’s not common to use prediction at the project level since the CPI and SPI vary from phase to phase (the productivity of a test phase usually is not related the productivity of a envisioning phase).

João Almeida is currently working for Microsoft Portugal as an Engagement Manager for the Public sector. His personal blog can be found at http://projmblog.blogspot.com/.

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This entry was posted on Saturday, July 21st, 2007 and is filed under Cost Management, Cost Estimating. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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