13.5.2. Primer on Earned Value Management

The goal of earned value analysis is to compare the originally planned time and cost performance of a project to the actual performance, as a project makes progress. The progress of a project is measured by the percentage completed to date.

Three pieces of data are calculated to perform an earned value analysis. The analysis is performed over a period of time, which we will call the reporting period . Typically the reporting period is from the project start date to the current date.

For uniformity, and ease of comparison, all the data is measured in terms of costs, even though cost is sometimes not the most natural way of viewing the quantity.

The data required are:

By comparing these values, the following conclusions may be drawn:

These values give some information about the current status of the project, and from them, projections can be made about the future status. In order to make the projections we need to derive two other values:

  1. Schedule Efficiency = Earned Value/Planned Value

    This number tells us how long the average unit of progress is taking as compared to the original estimate. For instance, if the Schedule Efficiency is 0.5, we may conclude that an average unit of progress is taking twice as long as originally estimated. The Schedule Efficiency is sometimes called the Schedule Performance Index (SPI).

  2. Cost Efficiency = Earned Value/Actual Cost

    This number tells us how much the average unit of progress is costing, as compared to the original estimate. For instance, if the Cost Efficiency is 0.5 we know that the an average unit of progress is costing twice as much as originally estimated. The Cost Efficiency is sometimes called the Cost Performance Index (CPI).

From the Schedule Efficiency value, it is easy to project the expected duration. For instance if the Schedule Efficiency is 0.5 and the original schedule lasted 8 months, we can expect the project to take 16 months to complete, because it is making progress at half the planned rate.

Similarly, from the Cost Efficiency value, it is possible to project the expected cost at completion. For instance if the Cost Efficiency is 0.5 and the originally planned cost of the project was 100000, we can expect the project to cost 200000, because each unit of progress is costing twice as much as originally estimated.

For projects that are behind schedule, one may calculate the additional resources required in order to still finish on time. For example if a project is 60 percent complete and its schedule efficiency is 0.75, then it has already taken 80 percent of the time allotted for it. In order to finish on time, the remaining 40 percent of the work must be finished in the remaining 20 percent of the time. In order to do this, the resources must be doubled.

[Note] Note

One should keep in mind that this is only an arithmetic calculation based on averages, and does not take dependencies and constraints between projects into account. Also it does not properly factor in materials costs.