Earned Value

Walk down projects through Project Controls - Part 5

Earning from Earned Value (EV) is what project managers shall be adjusting their focus early on. It does not only reveal “to date” pace and subsequently the productivity activities have been marching on but, more importantly, it connects actual performance to the control loop of forecasting the remaining works. Granting leave of absence to EV at the execution's outset can be deemed as a shambolic missed opportunity for key stakeholders to be kept abreast of realistic expectations. The method itself is not a scary conundrum and it is supposed to come into play when systematic schedule & cost engineering discipline did govern the pre-execution phase. Back then, activity-based estimating in conjunction with sound breakdown structures & scope ringfencing set the foundation for Earned Value Management. 

Baseline to EV metrics

The previous articles have emphasized the essential role baselining holds. It is paramount to duly establish the work, cost & risk breakdown structures and to have them integrated in the baseline programme. Thus, the reference against which the ensuing progress is going to be measured is set. 

Besides the three primary variables 

1) Planned Value (PV); 2) Actual Cost (AC); and 3) Estimate to Complete (ETC) 

a fourth one emerges in the picture of progress measurement system

4) Earned Value (EV). 

The latter, in combination with PV and AC, is going to unfold several indicators (see below) which are deemed to reveal “to date” and at completion deviations by fine-tuning the accuracy of intermediate forecasts.

Variations are calculated in absolute monetary value or as ratios of earned value to planned value, actual cost or both. Differences between EV and PV relate to time whereas those between EV and AC concern cost. 

Schedule Variance (SV) = EV – PV;

Cost Variance (CV) = EV – AC;

Estimate at Completion (EAC) = AC + ETC; there are multiple formulas which brings EV in the calculation of ETC. One simply can choose between factoring deviations "to date” in the remaining work or not, assuming point forward activities will progress as planned; 

Schedule Performance Index (SPI) = EV / PV; indicates the timing of achieved progress relative to the baseline;

Cost Performance Index (CPI) = EV / AC; indicates the cost efficiency of achieved progress relative to the baseline; 

To Complete Performance Index (TCPI) =(BAC-EV)/(EAC-AC); indicates whether CPI of the remaining works is tenable/achievable. 

The sketch in the title aims at simplified illustration of how EV could assist with calculating the total expected cost of a journey based on intermediate results. At checkpoint 1, EV indicates 1h 30' delay and 30$ extra cost. Bad weather, the causing event, is not expected to improve. Therefore, Estimate to Complete will be adjusted by the Cost Performance Index at checkpoint 1.

S-Curves’ slopes 

These indicators become meaningful when baseline (PV curve) is sound and realistically designed and built. The graphic representation of S-curves (below chart) is powerful in illustrating the work peak window besides deviations’ amplitude “to date” and/or at completion. 

If it were to depict the purpose of planning/budgeting in one chart, plotting the PV curve over time in such a way AC, ETC and EV curves follow suit would be the answer. However, this belongs to a quixotic world of projects. Keeping these curves along the way in close proximity to PV’s is what successful projects share. The said proximity varies across successful projects to the extent FID (final investment decision) has allowed for under contingency. 

Slopes of S-Curves are usually tricky. They are packed with meaningful information providing finicky eyes and hands examine them. Are efforts ratcheting up too quick, over too long or too short, by which resources at what timing & which productivity? These are typical questions S-Curves can visually answer to. Further, such charts are meant to shed light on “to date” and prospective pacing of the key scope elements. 

Finding your progress on a steep or a slight slope can be as good or as bad as EV’s deviations from PV & AC are. The schedule and cost performance indexes tell whether the progress is ahead or behind schedule, above or under budget. When SPI =1 and CPI = 1 project progress is spot on, alas, other world. SPI>1 ahead of schedule, SPI < 1 behind schedule, CPI > 1 under budget, CPI < 1 budget overrun.  

Stakes high, pitfalls many

One must not fallaciously rest all his/her laurels on EVM and regard it as the saviour of projects gone adrift. Instead, she/he shall make use of the EVM passport and systematically employ its parameters in finetuning the forecasts at every intermediate checkpoint. If progress / forecast parameters don’t fall into place and no change of fortune at the horizon, preparation phase is usually taking the blame. Amongst others, possible reasons could be:

• work & cost breakdown structures insufficiently defined;
• unintegrated cost & schedule; 
• no project specific activity coding in procurement & accounting systems;
• inaccurate and irregular physical progress measurement;
• unrecorded changes/ineffective change management.   

Take away

As usual, top 3 aspects to remember are: 

• no fear to implement EVM; entails good “housekeeping” in planning phase;
• identifies inefficiencies and improves forecasting accuracy;
• requires certain organization maturity.

Next step to “Walk down projects through Project Controls” is Change Management. Interested? Stay connected to get the next article when ready!

Walk down projects through Project Controls 

Part 1 - Introduction

Part 2 - Planning & scheduling

Part 3 - Estimating & controlling

Part 4 - Progress measurement & reporting

Part 6 - Document Management System