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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

1 . Budget At Completion (BAC)

 Budget At Completion (BAC) : Total cost of the program / project

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.

VAC= BAC - EAC

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 = (BAC – EV)/(BAC – AC)

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

Work Authorization (WA)

Giving formal authorities and responsibilities to the project team

Performance Measurement Baseline (PMB)

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

value for management control purposes

Work Package (WP)

A Task or set of tasks performed within a control account

Planning Package (PP)

A Logical aggregation of work that can be identified and budgeted

By . Mohammad Salama