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EARNED VALUE

DEFINITION
Earned Value is a powerful tool for measuring the Actual Performance of a project against its
Planned Performance. The knowledge from this measure increases a firms ability to boost
performance. The bottom line is that performance improvements drive productivity.

HOW IT WORKS
EV compares and measures the amount of work actually completed and resources actually
consumed at a certain point in a project with the amount of work planned (budgeted) to be
completed and resources planned to be consumed at that same point in the project

CONCEPTS
Earned Value consists of three key concepts:
1.
2.
3.

Budgeted Cost of Work Scheduled (BCWS) is the cost of the work scheduled or planned to be
completed in a certain time period per the plan
Budgeted Cost of Work Performed (BCWP) is the budgeted cost of the work done up to a
defined point in the project
Actual Cost of Work Performed (ACWP) is the actual cost of work up to a defined point in the
project

MATH
VARIANCE METRICS
Schedule Variance:
Schedule Performance Index:
Cost Variance:
Cost Performance Index:

SV = BCWP - BCWS
SPI = BCWP / BCWS
CV = BCWP - ACWP
CPI = BCWP / ACWP

CRITERIA
SV, CV = 0
SV, CV < 0
SV, CV > 0
CPI, SPI = 1
CPI, SPI < 1
CPI, SPI > 1

Project On Budget and Schedule


Over Budget and Behind Schedule
Under Budget and Ahead of Schedule
Project On Budget and Schedule
Over Budget and Behind Schedule
Under Budget and Ahead of Schedule

QUESTION 1
A supplier is contracted to install ten new testers at a semiconductor manufacturing plant. The
project must be completed within 6 weeks duration. 600 man-hours is the estimated labor
resource commitment, at a $10 per hour fully loaded time and materials cost.
Determine Project Status at Week 3 using traditional and earned value methods.
Given Information:

At Week 3 4 testers have been installed


400 man-hours have been consumed

SOLUTION
Traditional Method

Schedule = 3/6 weeks = 50% complete


Scope = 4/10 testers installed = 40% complete
Cost = 400/600 man-hours cost budgeted = 67% complete

Earned Value Method


1. Determine BCWP, BCWS, and ACWP:

BCWP = (600mh*$10/hr )* (4 testers / 10 testers) = $2400


BCWS = (600mh*$10/hr)*(3 weeks / 6 weeks) = $3000
ACWP = 400mh*$10/hr =$4000

2. With this information, we can determine the metrics:

SV = BCWP BCWS = $2400 $3000 = - $600


CV = BCWP ACWP = $2400 $4000 = -$1600
SPI = BCWP / BCWS = 2400/3000 = .8 Criteria: .8<1
CPI = BCWP / ACWP = 2400/4000 = .6 Criteria: .6<1

Our project is behind schedule and over budget!

QUESTION 2
One employee is tasked with developing six new procedures for a sales group. The project must be
completed within 4 weeks duration. 200 man-hours is the estimated labor resource commitment.
Determine Project Status at Week 2 using traditional and earned value methods.
Given Information:

At Week 2, 5 procedures have been written


100 man-hours have been consumed
Assume a $1/hour rate.

SOLUTION
Traditional Method

Schedule = 2/4 weeks = 50% complete


Scope = 5/6 procedures have been written = 83% complete
Cost = 100/200 man-hours cost budgeted = 50% complete

Earned Value Method


1. Determine BCWP, BCWS, and ACWP:

BCWP = (200mh)* (5 procedures / 6 procedures) = 167mh


BCWS = (200mh)*(2 weeks / 4 weeks) = 100mh
ACWP = 100mh

2. With this information, we can determine the metrics:

SV = BCWP BCWS = 167mh 100mh = 67mh


CV = BCWP ACWP = 167mh 100mh = 67mh
SPI = BCWP / BCWS = 167/100 = 1.67 Criteria: 1.67>1
CPI = BCWP / ACWP = 167/100 = 1.67 Criteria: 1.67>1

Our project is ahead of schedule and under budget!

QUESTION 3
One employee is tasked with developing three databases. The project must be completed within
10 weeks duration. 500 man-hours is the estimated labor resource commitment.
Determine Project Status at week 7 using traditional and earned value methods.
Givens:
At week 7, 350 man-hours consumed and 2 databases completed

SOLUTION
Traditional Method

Schedule = 7/10 weeks = 70%


Budget = 350mh / 500mh = 70%
Scope = 2/3 databases complete = 67%

Earned Value Method


1. Determine BCWP, BCWS, and ACWP:

BCWP = (500mh)* (2 databases/ 3 databases) = 333mh


BCWS = (500mh)*(7 weeks / 10 weeks) = 350mh
ACWP = 350mh

2. With this information, we can determine the metrics:

SV = BCWP BCWS = 333mh 350mh = - 17mh


CV = BCWP ACWP = 333mh 350mh = -17mh
SPI = BCWP / BCWS = 333/350 = .95 Criteria: 0.95<1
CPI = BCWP / ACWP = 333/350 = .95 Criteria: 0.95<1

Our project is behind the schedule and over budget!