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Chapter 14

Earned Value Overview

1 - BAC
• Example : Assume that we will build 10 houses , each house has a value of \$1000 , We expect to complete
them in 10 weeks in proportion , our report will be at the end of week 4 . So , at end of week 4, altogether 4
houses should be completed,

W1 W2 W3 W4 W5 W6 W7 W8 W9 W10

\$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000

BAC = \$ 1000 ( per house) X 10 houses = \$ 10, 000

By . Mohammad Salama
2 . Planned Value (PV)

W1 W2 W3 W4 W5 W6 W7 W8 W9 W10

\$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000

Planned work up to week 4

 Planned Value (PV) : The budgeted value of the work Scheduled so far at a specific date

Planned Value PV = BAC X ( % of planned work ) .

 So , at week 4 , we plan to complete 4 houses ( 40% of total houses) , each house costs \$ 1000

PV = BAC (\$ 10.000 ) X 40 % = \$ 4,000

By . Mohammad Salama
3 . Earned Value (EV)

W1 W2 W3 W4 W5 W6 W7 W8 W9 W10

\$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000

Actual work at week 4

 Earned Value (EV) : The planned value of the work completed so far at a specific date

Earned Value EV = BAC X ( % of Actual work ) .

 So , at week 4 , we found only 3 houses only completed ( 30% of total houses) , each house
costs \$ 1000

EV= BAC (\$ 10.000 ) X 30 % = \$ 3,000

By . Mohammad Salama
4 . Actual Cost (AC)

W1 W2 W3 W4 W5 W6 W7 W8 W9 W10

\$1500 \$1000 \$2000 \$1500 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 Actual Cost

\$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 \$1000 Planned Cost

 Actual Cost (AC) : The total expenditure for the work so far at a specific date

AC = Sum of the costs for the given period of time

 So , at week 4 , our plan was to spend \$ 4000 ,but actually we spent more – as shown in figure-

AC = 1500 + 1000 + 2000 + 1500 = \$ 6000

By . Mohammad Salama
5 . Cost Variance (CV)

From the previous example , we get the following results :

PV = \$ 4,000 EV = \$ 3,000 AC = \$ 6,000

 Cost Variance (CV) : the difference between what we expected to spend and what was actually spent.

CV = EV-AC

CV = EV-AC = 3000 – 6000 = - \$3000

 That is meaning , we lost \$3000 due to the difference between planned and actual cost

By . Mohammad Salama
6 . Cost Performance Index (CPI)

From the previous example , we get the following results :

PV = \$ 4,000 EV = \$ 3,000 AC = \$ 6,000

 Cost Performance Index (CPI) : The rate at which the project (or program) performance is meeting cost
expectations during a given period of time.

CPI = EV ÷ AC

CPI = 3000 / 6000 = 50 %

That is meaning if we plan to spend \$ 1, actually we spent \$ 2 , therefore, we will spend the double of our
planned cost by the end of program if no corrective actions will be taken .

By . Mohammad Salama
7 . Schedule Variance (SV)

From the previous example , we get the following results :

PV = \$ 4,000 EV = \$ 3,000 AC = \$ 6,000

 Schedule Variance (SV) : The difference between where we planned to be in the schedule , and where
we are .

SV = EV - PV

CV = EV-PV = 3000 – 4000 = - \$1000

That is meaning we lost \$1000 due to the difference between planned and actual productivity

By . Mohammad Salama
8 . Schedule Performance Index (SPI)

From the previous example , we get the following results :

PV = \$ 4,000 EV = \$ 3,000 AC = \$ 6,000

 Schedule Performance Index (SPI) : The rate at which the project (or program) performance is meeting
schedule expectations up to a point in time.

SPI = EV ÷ PV

SPI = 3000 / 4000 = 75 %

That is meaning for every day , we actually perform 75% of what we planned to do .

By . Mohammad Salama
9 . Estimate at Completion(EAC)

From the previous example , we get the following results :

PV = \$ 4,000 EV = \$ 3,000 AC = \$ 6,000
BAC= \$ 10,000 CPI= 50% SPI= 75%

 Estimate at Completion(EAC) : Projecting the total cost at completion based on project or program
performance up to a point in time.

EAC= BAC / CPI

If we believe the project will continue to spend at the same rate up to now
OR

EAC= BAC + AC - EV

EAC= BAC / CPI = 10.000 / 0.50 = \$ 20,000

 That is meaning according to actual work the expected cost at the end of our program will be \$13.333
By . Mohammad Salama
10 . Estimate to Complete (ETC)

From the previous example , we get the following results :

PV = \$ 4,000 EV = \$ 3,000 AC = \$ 6,000
BAC= \$ 10,000 CPI= 50% SPI= 75%

 Estimate to Completion(ETC) : Projecting how much more will be spent on the project ( or program )
based on past performance.

ETC= EAC- AC

ETC= = 20,000 – 6,000 = \$ 14,000

 That is meaning according to actual work the expected remaining cost up to the end of our program
will be \$7.333
By . Mohammad Salama
11 . Variance at Completion (VAC)

From the previous example , we get the following results :

PV = \$ 4,000 EV = \$ 3,000 AC = \$ 6,000
BAC= \$ 10,000 CPI= 50% EAC = 13,333

 Variance at Completion (VAC) : The difference between what was budgeted and what will actually be
spent.

ETC= = 10,000 – 13,333 = - \$ 3,333

 That is meaning according to actual work , at the end of the program we will spend \$ 3,333 more than
what we planned

By . Mohammad Salama
12 . To-Complete Performance Index (TCPI)

From the previous example , we get the following results :

PV = \$ 4,000 EV = \$ 3,000 AC = \$ 6,000
BAC= \$ 10,000 CPI= 50% EAC = 13,333

 To-Complete Performance Index (TCPI) : Performance that must be achieved in order to meet financial
or schedule goals.

TCPI = = (10,000 – 3,000) / ( 10,000-6,000) = 1.75%

 That is meaning according to actual work , cost performance index that is should be achieved on the
remaining work to meet the specified management goal = 1.75%

By . Mohammad Salama
Conclusion

BCWS (PV) The budgeted value of the work Scheduled so far at a specific date

BCWP (EV) The planned value of the work completed so far at a specific date

AC Sum of the costs for the given period of time

SV The difference between where we planned to be in the schedule , and where we are .

CV The difference between what we expected to spend and what was actually spent.

The rate at which the project (or program) performance is meeting schedule
SPI
expectations up to a point in time
The rate at which the project (or program) performance is meeting cost
CPI
expectations during a given period of time
By . Mohammad Salama
Important definitions

Responsibility Assignment Matrix (RAM)

A resource matrix of the organizational breakdown structure with the WBS, which identifies the resources

associated with the control account levels established for the project

Approved baseline of the project

By . Mohammad Salama
Important definitions

Control Account (CA)

A Management control point, at which budgets and actual costs are accumulated and compared to earned

A Logical aggregation of work that can be identified and budgeted

By . Mohammad Salama