Trying to manage a project without project management is like trying to play a football game without a game plan

Katherine Tate

Introduction to Project Management

In times of enormously growing competition in the business world, proficient project managers with exemplary project management skills are in high demand. In any big organization, there are multiple projects running simultaneously, and the efficiency of project managers is put to test every day. Even for small businesses or freelancers, effective project management is the key to success.

This blog highlights the key metrics of earned value analysis in project management along with their calculators. But before that, it is essential to establish a clear understanding of project management, project status reporting, and earned value analysis.

Project management refers to the discipline of using established principles, procedures, methods, skills, and knowledge to achieve specific project objectives. Hence, project management can be defined as the discipline of planning, organizing, and managing diverse resources to ensure the successful completion of a given project. The key components of project management include time, cost, scope, and quality.

Moreover, to ensure that the project is completed considering all these factors, the IPECC model is one of the most popular and useful project management models that consist of a group of processes i.e. initiation, planning, executing, controlling, and closing the project. These project management phases help to effectively complete the project by managing the project effectively from the initiation to the closure.

Moving forward, let us now underline the concepts of project status reporting and earned value analysis. The fundamentals will further introduce new dimensions of project control and project management.

Project Status Reporting and Earned Value Analysis

Project Status Reporting is another key requirement of the project and the project status report can be defined as the document that contains information on the progress of the project. The project status report helps to keep stakeholders informed about the progress of the project in terms of the cost and time variable.

Besides, the project status reports are mainly prepared at the project execution and control phase to ascertain the overall performance of the project. The major variables that can be calculated to comprehend the project status include Earned Value, Planned Value, Actual Cost, Cost Variance, Schedule Variance, Cost Performance Index (CPI), Schedule Performance Index, and Estimate at Completion.

Hence, Earned Value Analysis is one of the important measures for Project Status Reporting. Earned Value Analysis refers to the technique that helps the project managers in project monitoring and controlling. Through the Earned Value Analysis, the project managers calculate the current status of the project and then ascertain the future project performance on the basis of it.

Project management metrics

Probing further, let us discuss the key components of the EVA and the formulae to compute each component.

Earned Value (EV) and its calculation

Earned Value or Budgeted Cost of Work Performed (BCWP) can be defined as the way to measure and monitor the level of work completed in the course of the project. To elaborate, the Earned Value of the project represents the amount of work actually completed. Calculation of Earned Value can help you to collate the work that is actually completed with the planned cost of the project.

The formula for calculating the EV of the project is shown as follows-

PV = Percent complete (Planned) x BAC (Budget at Completion)

To exemplify, if the task was planned to be completed by 50 % to date. So, the Planned Value of the project will be $1,000 (50 % x $ 2000 = $ 1000)

  • Percent complete (Planned)

  • Task Budget

  • Planned Value (PV)

  • Percent complete (Actual)

  • Task Budget

  • Earned Value (EV)

Actual Cost (AC)

The Actual Cost simply is the total amount of money being spent for the work completed at the specific point of time.

AC = Actual Cost of the Task

Let’s assume that the Actual Cost incurred to complete the task is $1,200.

These three components i.e. Planned Value, Earned Value and Actual Cost are input from the project data. These inputs are shown in the table as follows-

Formula Project completion
PV = Percent Complete (planned) x Task Budget$1,000.0050% OF BAC
EV = Percent Complete (actual) x Task Budget$800.0040% OF BAC
AC = Actual Cost of the Task$1,200.00 

After considering the planned and actual completion of the project, the project manager needs to perform the variance analysis, trend analysis and forecast the project performance. Let’s help you identify their formula and calculation methods by following the example taken above.

Cost Variance (CV) and its calculation

Cost Variance refers to the difference between the Earned Value and the Actual Cost of the task completed. Cost Variance tells the project manager if the task in the project is over or under-budgeted.

The formula of Cost Variance is shown as follows:-

CV = EV – AC

Continuing our example from above, CV = $ 800 - $ 1200 = -$ 400. This shows that the task is over budget.

  • Earned Value (EV)

  • Actual Cost (AC)

  • Cost Variance (CV)

Schedule Variance (SV) and its calculation

Schedule Variance refers to the difference between the Planned Value and the Earned Value of the task. It helps to evaluate the schedule performance of the task. The formula for Schedule Variance is added below.

SV = EV – PV

In the example taken, SV = $ 800 - $ 1000 = -$ 200. This shows that the task is behind the planned schedule.

  • Earned Value (EV)

  • Planned Value (PV)

  • Schedule Variance (SV)

Cost Performance Index (CPI) and its calculation

Cost Performance Index (CPI) is a measure of the financial efficiency and effectiveness of the task by gauging actual work completed (calculated through Earned Value) relative to the Actual Cost incurred in the project.

CPI = EV / AC

In our example, CPI of the project = $800/ $ 1200 = 0.67. This means that the task is over budget.

  • Earned Value (EV)

  • Actual Cost (AC)

  • Cost Performance Index (CPI)

Schedule Performance Index (SPI) and its calculation

The Schedule Performance Index (SPI) is similar to Schedule Variance as it helps to evaluate if the project is ahead or behind the schedule but the Schedule Performance Index translates the number into value and provides better analysis of the schedule performance.

SPI = EV/PV
  • If the value of the Schedule Performance Index is less than 1, it means that the task is behind the schedule
  • If the value of the Schedule Performance Index is greater than 1, it means that the task is ahead of the schedule
  • If the value of Schedule Performance Index is equal to 1, it means that the task is on its schedule

In the example we have taken, SPI = $800/$1000 = 0.80. This implies that the task completed in the project is behind its schedule as the value of the SPI is less than 1.

  • Earned Value (EV)

  • Planned Value (PV)

  • Schedule Performance Index (SPI)

Estimate at Completion (EAC) and its calculation

The Estimate at Completion (EAC) is the forecasting technique that helps the project manager to estimate the cost of the project on completion. The Estimate at Completion can be calculated on the basis of three criteria which will be discussed in the following section.

Criterion 1: The Cost Variance will continue in the project.

EAC = BAC/CPI

In our example,

  • BAC = $ 2000
  • CPI = 0.67
  • EAC = $ 2985
  • Budget at Completion (BAC)

  • Cost Performance Index (CPI)

  • Estimate at Completion (EAC)

Criterion 2: The Cost Variance will not continue and the project will be achieved as per the planned schedule and cost.

EAC = AC + (BAC – EV)

In our example,

  • AC = $ 1200
  • BAC = $ 2000,
  • EV = $ 800
  • EAC = $ 2400
  • Actual Cost (AC)

  • Budget at Completion (BAC)

  • Earned Value (EV)

  • Estimate at Completion (EAC)

Criterion 3: The project's future cost will be impacted by the past schedule performance and the cost.

EAC = AC + [(BAC – EV)/(SPI x CPI)]

  • AC = $ 1200
  • BAC = $ 2000,
  • EV = $ 800
  • SPI = 0.80
  • CPI = 0.67
  • EAC = $ 3450
  • Actual Cost (AC)

  • Budget at Completion (BAC)

  • Earned Value (EV)

  • Schedule Performance Index (SPI)

  • Cost Performance Index (CPI)

  • Estimate at Completion (EAC)

Estimate to Complete (ETC) and its calculation

Estimate to Complete (ETC) is the estimated cost of the remaining project. This forecasting tool helps to estimate the planned cost to complete the remaining project. It can also be defined as the difference between the Current Actual Cost and the Estimate at Completion (EAC).

ETC = EAC – AC

Continuing our example, 3 EAC based on 3 different conditions were calculated.

  • Estimate at Completion (EAC)

  • Actual Cost (AC)

  • Estimate to Complete (ETC)

Variance at Completion (VAC) and its calculation

Variance at completion compares the Budget at Completion (BAC) and Estimate at Completion (EAC) which then helps the project manager to forecast the cost variance at the completion of the project.

VAC = BAC – EAC

Continuing with our example, BAC = $ 2000.

  • Budget at Completion (BAC)

  • Estimate at Completion (EAC)

  • Variance at Completion (VAC)

To Complete Performance Index (TCPI) and its calculation

To Complete Performance Index (TCPI) is one of the key project management tools which helps to measure the future cost performance of the project. This tool helps the project manager to estimate the funds needed to complete the project. This tool can be used by the project in the two different conditions, i.e.

TCPI = (BAC – EV) / (BAC – AC)

In our example,

    • BAC = $ 2000.
    • EV = $ 800
    • AC = $ 1200
TCPI = (2000 - 800) / (2000 - 1200) = 1.5
  • Budget at Completion (BAC)

  • Earned Value (EV)

  • Actual Cost (AC)

  • To Complete Performance Index (TCPI)

The project budget is flexible and will accommodate the past variance

TCPI = (BAC – EV) / (EAC – AC)

In our example,

  • BAC = $ 2000.
  • EV = $ 800
  • AC = $ 1200
  • Budget at Completion (BAC)

  • Earned Value (EV)

  • Estimate at Completion (EAC)

  • Actual Cost (AC)

  • To Complete Performance Index (TCPI)

We have 3 values of EAC, so, lets calculate TCPI differently for each EAC

Conclusion

To recapitulate, it is essential that every project is managed in accordance to the project scope, cost and schedule. Earned Value management helps the project manager to monitor the project performance by measuring project cost and schedule performance. The calculators added in this article can be of great help for project managers to calculate project performance metrics in a quick and accurate manner.