Happy Monday! I hope you all enjoyed your weekend and are ready to start another great week! I want to jump right into this week as I am going to try and cover a topic that has a wide range of comfort levels, actual usage/implementation, and degrees of sophistication. I am going to focus on the latter and keep this very un-sophisticated.
Earned Value Management (EVM) is a method of reporting project status in terms of time and money. It gets us away from best effort or ‘guesstimates’ and provides a way to give solid information to your stakeholders. The below example is not mine and for the life of me, I can not find where I got it from…very sorry. However, I think it is a very easy, basic way to explain this to you.
Job Description: Paint 5 rooms
Budget: $1,000 per room
Duration: 1 Room per day
Current Status: End of Day 3, 2.5 rooms have been completed, at $2,800
1-5 are somewhat standard and most other calculations are based built from these. While this example can be ‘eyeballed’ for numbers, I am trying to keep it very basic.
- (PV) Planned Value – Planned Cost of Planned Work is 3 days at $1,000 = a PV of $3,000
- (EV) Earned Value – Actual completed budget is $1,000 * 2.5 days = an EV $2,500
- (AC) Actual Cost – Actual cost of actual work done is $2,800
- (BAC) Budget at Completion = 5*$1,000 = $5,000
- (CV) Cost Variance – Difference between planned and actual cost of work done = EV-AC
- $2,500 – $2800 = -$300 (negative is over budget)
- (CPI) Cost Performance Index = We get $_.00 of work out of every dollar we put into the project = EV/AC
- $2500/$2800 = $.8928 or We get $.89 of work out every dollar we put in.
- (EAC) Estimated to Cost at Completion (based on performance so far, what will it now cost) = BAC/CPI
- $5000/.89 = $5,600
- (ETC) Estimated to Complete- How much more money do we need to complete = EAC – AC
- $5,600 – $2800 = $2,800
Cost Performance Index and Estimated to Complete tend to be the ones that get the most feedback…a negative CPI can get some executives stirred up when they see a negative there. As for ETC, many executives are bottom line kind of folks…”okay, we had a hiccup. What will it cost from this point forward to make this right?”
Now for a time view….
- (SV) Schedule Variance – Difference between work actually done & planned to be done (0 is good) = EV-PV – 2500 – 3000 = -500 (behind schedule)(SPI)
- Schedule Performance Index – Progressing x% of plan rate (<1 behind, >1 ahead) = EV/PV – 2500/3000 = .8333 less than 1.0 so they are behind (*100 = 83% progress rate)
There are many other calculations that can be made in this space, but in my experience these are have been the ones that have stirred debate, received feedback/attention from the execs, and simply get the point across.
I would love to hear your feedback…am I missing a key calculation? Did I miss something here?